Disruption ahead; should banks be worried?

20 Oct, 2017 - 00:10 0 Views
Disruption ahead; should banks be worried?

eBusiness Weekly

Kudzanai Sharara Taking Stock
The banking industry has gone through more consequential changes in the last two to three years than it did in the preceding thirty years. The modern interaction between banks and clients through digital interphases, as well as the new customer expectations this brings, have been the greatest contributors to banking industry changes. As the world moves towards fintech-driven models, the more competitive banks are actively participating, preferably leading in this dynamism, while the banks that lag behind remain passive and second best to these shifts.
It has become a commerce imperative for most companies, both established and upstarts to utilise fintech to develop new services that provide greater value at lower prices for consumers and business to business dealings.
As a result, banks are churning out new products into the market as clients’ battle one another for market share. Products such as EcoCash and Zipit quickly come to mind.
We have seen partnerships being established between businesses from different economic spheres in an effort to establish a one stop shop for the consumer.
Of late it has become a common feature to see that corporates from different sectors are coming together in non-traditional ways to develop better products for their customers. Banks and other financial sector entities are at the epi-center of this convergence.
The most common partnership is that between banks and insurance companies through what is now commonly known as “bancassurance”, an arrangement in which a bank and an insurance company form a partnership so that the insurance company can sell its products to the bank’s client base.
Economies of scale and scope make such alliances attractive for both parties. As the lines between industries sectors blur all around, financial services is taking on new meaning in commerce. But, it’s not limited to bancassurance and partnerships alone.
In some cases, other corporates have taken bold steps to in-house this convergence in an independent manner; extending their internal infrastructure in order to offer non-traditional services to their customers.
Edgars Stores, has long established itself as a credit retail outlet, having dominated the market where the closest rival, Truworths, is probably a third of its size by revenue.
Despite having such a solid footing in the country, the firm has since ventured into another business area with high growth potential.
Rather than going all-in on clothing retail, pursuing new customers across a plethora of alternative channels, as well as different segments, Edgars has gone the micro-finance route.
Most in the market only got to know about this line of business when in announcing Edgars’ results, management noted that the “micro-finance business, Club Plus (Private) Limited has commenced trading albeit with caution.”
The business, which has a license from the Reserve Bank of Zimbabwe, offers short term loans of between $200 and $1,500 for a period of between four to six months, although at first it was for between nine and 12 months.
While it seems like Edgars has ventured into unchartered territory, management believes there is no difference between offering clothing items on credit and offering short term loans.
According to Bright Ndlovu, the Edgars executive who is spearheading this initiative, the group has always provided credit services.
Ndlovu believes fundamentally there isn’t much new in what they are doing today, versus what they used to do over the years. The only difference is the utilisation of shifting fintech infrastructure. The process of granting loans is the same as that of granting credit for clothing. The parameters and requirements are the same.
In other ways, the credit granting criteria is the same. To him it’s an opportunity that they have identified and have the necessary skills to operate this kind of business. While the idea is to tap into its quality customers with an unquestionable ability to pay, the main difference is that the debtors’ book will become bigger while finance income will contribute a much larger portion to profits.
So, should bankers be worried about retailers moving in on business and creating distance between banks and their customers?
This is not the first time retailers have tried to move into the provision of financial services to their customers.
However, what has been common is to see retail brands providing financial services to boost their own primary retail sales, by enticing shoppers to spend more in-store, rather than to create a new revenue stream from competing directly with formal banking sector players.
OK Zimbabwe opened its financial services business years back offering services such as money transfer.
As much as retailers are not going to take over all the services offered by the banks any time soon, any banking services they will offer will cut into bankers’ bottom lines — especially if interest rates are competitive. Further, any brand that has built a big and loyal brand community, is a credible threat to the established banking industry. Besides, precedents have been set elsewhere.
Alibaba, an online retailer, became a $16 billion lender in less than three years, and China’s largest seller of money market funds in only seven months.
Developments in fintech, whilst beneficial to active banks leading in the dynamism, has also become a going concern threat for laggards. This is a matter of serious reflection for banks hoping to be around for the next thirty years.

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